Why Robinhood Chain’s success may be a bad sign for crypto

​Robinhood Chain is quickly becoming one of crypto’s most successful new networks, generating millions of dollars in weekly fees while attracting billions in trading volume. But there’s a potential problem with this development: Robinhood Chain’s success may say less about the strength of decentralized crypto infrastructure than it does about how much of the industry is moving toward centralized financial intermediaries.

Robinhood (HOOD) launched Robinhood Chain’s public mainnet in July as an Ethereum layer-two network built using Arbitrum’s technology. The network was designed around tokenized real-world assets, particularly Robinhood’s tokenized stocks.

Robinhood described the chain as a way to connect traditional finance with DeFi, and its early success has been impossible to ignore. At the time of writing, DeFiLlama data⁠ shows Robinhood Chain with roughly $25 million in fees generated over the past seven days, which is far more than any other blockchain over the same time period. Additionally, its decentralized exchange (DEX) volume has climbed to more than $11 billion over seven days, which puts it ahead of the likes of Ethereum and Base.

While tokenized stocks were supposed to be one of Robinhood Chain’s main use cases, the biggest source of activity so far has been crypto-native trading. Uniswap has become a major source of volume, while perpetual futures are also available through Lighter. Memecoin trading and token creation have been particularly important, as Pons, a token creation and trading application, has quickly become one of the top crypto apps overall in terms of revenue.

The increasing centralization of crypto

There is no denying that Robinhood Chain is off to a strong start, but that success also fits into a troubling trend for the industry. A shrinking number of entities are responsible for collecting revenue, processing transactions, and issuing the assets that users actually want to hold and trade, and the new boss is starting to look a lot like the old boss crypto was originally supposed to replace.

Of course, this direction makes sense from a business perspective. The applications that have gained meaningful traction outside Bitcoin are generally the ones where companies can make money, reduce costs, and operate with less regulatory restrictions. At the end of the day, cypherpunk ideals are not necessarily the top priority when the goal is to simply build a profitable financial product or service.

Stablecoins are one of the clearest examples of this point. Much of the crypto economy depends on centrally issued assets such as Tether’s USDT and Circle’s USDC. Robinhood Chain itself is following a path that Coinbase already demonstrated with Base by taking Ethereum’s underlying technology, building a controlled execution environment on top of it, and capturing as much of the economics as possible.

Even Bitcoin is not immune to this trend of centralization. Spot ETFs have made custodians a central part of Bitcoin adoption, while companies such as Strategy have turned corporate treasury ownership into another major channel for accumulating exposure to the asset via trusted third parties. The recent Coldcard incident also provides another reminder that self-custody carries its own risks, which could push more users into that custodial direction.

Bitcoin at least has an obvious defense against this trend. Holding the asset itself is the primary use case, so it is difficult to completely remove Bitcoin from the equation. However, general-purpose blockchains are different. Ethereum, for example, can increasingly become the invisible infrastructure underneath products where users barely interact with ETH at all. Base and Robinhood Chain are two obvious examples, but Circle is taking the idea even further with Arc, which effectively removes ETH from the equation entirely and replaces it with USDC.

And this sort of vertical integration of the crypto tech stack is making more sense over time. After all, if the dominant applications are built around stablecoins, tokenized stocks, and other centrally issued real-world assets, the need for a decentralized base layer beyond marketing gimmicks or regulatory trickery becomes a bit unclear.

Steven Goldfeder, the founder of Arbitrum, has pushed back on the idea that this is bad for Ethereum. On X, he pointed out that Robinhood Chain generated roughly $6 million in demand for ETH through gas payments.

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Of course, the counterargument is that ETH being used as an intermediate gas asset does not necessarily mean much if Robinhood is selling those ETH-denominated fees for dollars as quickly as possible, which many Ethereum critics have assumed to be the case.

Ryan Berckmans made the broader case for Ethereum alignment, arguing that Robinhood creates new ETH holders, markets Ethereum to traditional finance and mainstream users, and helps expand the layer-two Ethereum ecosystem. He wrote, “Eth alignment is a real concept, but not in the revenue/fee maxi way that eth opponents tried to cast it.”

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HOOD vs ETH

How much of recent crypto adoption is really about decentralization, and how much is simply regulatory arbitrage wrapped in crypto infrastructure?

Last week, Robinhood Chain was successfully producing new blocks, but its transaction data stopped being posted to Ethereum for a total of roughly 14 minutes across two separate gaps. There was no major user panic because the chain’s own sequencer kept running. And that may be the most revealing part of the incident. A network can be marketed as Ethereum-based while the average user has little reason to care whether its underlying Ethereum settlement layer is functioning at any particular moment.

Research from ARK Invest also recently found that most of the activity on Robinhood Chain appears to be coming from existing crypto users rather than people who were newly introduced to crypto through Robinhood. “Good for #Robinhood: net new users who will help build its liquidity and increase its credibility in crypto,” posted ARK Invest founder and CEO Cathie Wood on X.

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Indeed, good for Robinhood. If Robinhood and other financial institutions continue to capture the economic value created by tokenization, stablecoins, and onchain trading while Ethereum increasingly serves as invisible infrastructure underneath those products, it becomes harder to explain why the better investment thesis should necessarily involve owning ETH.

Notably, Robinhood stock has dramatically outperformed ETH since the company went public. Around the November 2021 crypto cycle peak, HOOD traded around $35, while ETH was around $4,730. Now, HOOD is about $122 while ETH is a little below $2,500.

This doesn’t necessarily mean HOOD will continue outperforming ETH in the future. But it’s definitely something to consider if crypto continues on this path of centralization and there isn’t much need for Ethereum’s base layer infrastructure.